Over the past six months, there has been a dramatic fall in gas prices. Although this drop in price is a positive thing for people who pay for fuel, the decline in prices could overall hurt the economy.
Unlike a large tax cut, most US drivers who tend to refuel weekly are saving a large amount of money from the low gas prices and are able to use this money towards other things. Some economists have estimated that US households have already saved about $75 billion in the past six months due to the lower prices. If these prices continued to stay at their current levels, households would save over $1000 on an average annually.
A study from the University of Michigan found that when gas prices rise, consumers tend to buy smaller, more efficient vehicles. But when the prices drop, these buyers fall back to buying gas-guzzling SUVs. This study was proven when GM recently announced their intentions to lay off 510 workers at two plants because the demand for small cars had slowed.
Although cheap oil is good news for people and the countries that use oil and gasoline, it comes as bad news for the people and countries that produce it.
The plunge in prices also poses economic risks for the US states that rely heavily on oil drilling, including Wyoming, Oklahoma, and Texas to name a few. Lower prices mean less revenue and economic activity. However, because the US continues to be a net oil importer, this benefits the nation at large.